Nonprofit Organization Mergers: What to Do.
By Eugene Fram
A Fast Company article by Alice Korngold about nonprofit mergers lists seven steps for a successful nonprofit merger. * Korngold used these steps to describe nonprofit merger activity with which she had been involved.
In October 1998, Family Service America (FSA) merged with the National Associations of Homes and Services to Children (NAHSC) to form the Alliance for Children & Families. I chaired the FSA investigating committee in the merger process and later served as co-chair of the Alliance board during a two-year transition period. This article adds another experience example to the model described by Alice Korngold.
Both organizations were facing a reality of declining membership, and they realized they could not financially survive on their own. Prior to the talks between the two, both had sought merger partners elsewhere without success.
Put the Mission and the Interests of the Community First
First merger discussions centered on mission, vision and values. These were deemed to be highly compatible. Both recognized that their board compositions were quite different. The FSA board was largely composed of volunteer directors, like myself, who had director experiences with local family agencies. The NAHSC board was largely composed of operating CEOs of homes, including, at the time, very large ones like the well-known Boys’ Town.
Get Effective Professional Advice Early in the Process
Both groups sought legal and accounting counsel as needed. For example the boards, based on legal counsel, agreed what actions needed to be taken if the merger dissolved within a two-year period. In addition, the groups applied for a foundation grant to handle merger costs, such as personnel termination payments.
Establish a Purposeful Process in Exploring Options
There were a number of options to be considered. FSA had a large office facility and staff located in Milwaukee with a legislative office in Washington. The NAHSC had a small combined office in Washington. Since there was an overlap in some management duties, the joint committee needed to make suggestions for personnel terminations. Also it was agreed that the new Alliance Board would have Co-Chairs for the first two years, one from each of the merging organizations. On these and other issues that arose, the two groups were able to make compromises without encountering a significant “deal breaker.”
Draw on the Experience & Expertise Among Your Board Members
None of the board members for the two organizations had prior merger experiences. However, we were able to move through the merger process without too many “bumps in the road.”
Communicate Your Decision to Your Stakeholders
This step was easily accomplished.
The first six to nine months the merger worked well. However, nobody seemed to recognize the new organization was in a “honeymoon period.” One agency executive from the NAHSC side described the major cultural problem the new organization encountered.
“ Agency executives like me are used to running the show and having the leadership. As executive directors, it is something we fight for all the time with our own boards — we don’t want them (the boards) to micromanage us. But as board members, in the Alliance situation, there was a sense of, ‘Who is in charge here?’ We finally (realized) we have to be able to give the (CEO of the Alliance) the space to run things”
Peter Goldberg, President & CEO at the time, commented about the issue ten years later, “The first three years of merger implementation were very tough. Anytime you do change, everybody feels threatened. The question becomes can you focus on what you going to gain in the future, as opposed to what you’re going to lose from the past? At a certain point, the board and leadership realized that fighting for the past was destructive, and we needed to orient to the future. The alternative for both organizations was to take a slow respectable ride to oblivion. I have never liked that destination.” ** Peter gives credit to the former COO, Susan Dreyfus, now President & CEO of the Alliance, for making the merger work.
Today, the Alliance serves about 400 member agencies. Members range in size from some, with a couple dozen employees, to some with thousands of employees. Collectively they employ more than 55,000 staff and utilize the services of more than 10,000 volunteers who serve on their boards and offer their time and services in other support roles, ranging from driving older adults to medical treatment to reading to preschool kids. Member economic impact is considerable with more than $10 billion in annual spending power.
With the financial challenges facing nonprofit organizations, it appears that there will be many more nonprofit mergers in the future. This blog shows the similarity in merger processes used to develop successful mergers. The steps, as described by Korngold, can be a good beginning for other nonprofits encountering similar challenges.
• **A Century of Service, Alliance1.org/centennial, Chapter 11, 2010.
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